Economic Snapshot | Wages, Incomes, and Wealth

Wages lag productivity growth

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Snapshot for April 21, 1999

Wages lag productivity growth

While the recent gains in real wages are good news for workers, they must be considered in their historical context. First, for male workers, the wages of 80% of the workforce are lower, much lower at some wage levels, than in 1979, when wage inequality began to accelerate. The median male wage is 12.4% lower now than in 1979; the 20th percentile male wage is 14.3% below its 1979 level. For low-wage (10th percentile) females, hourly wages in 1998 were 11.2% below their 1979 level. Fortunately, higher-paid females have fared better, as their wages have grown by 9.1% since 1979.

The figure, in which we compare the growth of median wages (indexed to 1989) to that of productivity, provides another, equally disconcerting perspective on the wage growth dilemma. Comparing wages to productivity is useful because productivity, or output per hour, is one measure of how fast the economy is expanding — growing productivity means there is more output per hour of work to be distributed as compensation to the workforce and as profits or investment.

Historically, increases in productivity have meant growth in real compensation for much of the workforce. As the figure reveals, however, the gap between productivity and the median wages of both males and females grew through the 1989-96 period and remains significant in 1998. Even with the recent growth spurt in wages, the economic fortunes of the median worker continue to diverge from the overall growth in the economy.

Source: EPI Issue Brief #129: Wages Gain Ground — workforce benefits from tighter labor markets, higher minimum wage.

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